he Federal Deposit Insurance Corp. (FDIC) held unprecedented public hearings April 10 through 14 in the Washington, D.C., area and on April 25 in Overland Park, Kan., to determine whether Wal-Mart Stores Inc. can use an Industrial Loan Company (ILC), chartered in Utah, to found its own bank.

Wal-Mart submitted its application in July 2005 for federal deposit insurance to charter an ILC in July 2005. Since that time, its application has created a flurry of letters from various sectors including community banks, politicians, labor and consumer organizations, and trade groups. According to the FDIC, these were the first hearings ever held to discuss a banking application in its 73-year history.

3,600 letters flood the FDIC

"Banking applications generally don't attract any attention at all," said David Barr, spokesman for the FDIC. "When Target applied for their ILC, we didn't get a single letter. A dozen comment letters is considered a lot. For Wal-Mart's application, we've received 3,600 letters."

First Data Corp. handles most of Wal-Mart's payment processing business, an estimated 2 billion purchases with bankcards and checks a year. The company said that bringing its processing in-house is expected to generate $10 million in revenue by the third year of operation.

$10 million is small potatoes for Wal-Mart

Ten million dollars is a very small fraction of Wal-Mart's revenues, leading some critics to speculate that Wal-Mart's long-term plans include opening branch banks in its 3,000 retail locations. This would expand on the financial services, like check cashing, that it already offers in some locations and resurrect previously shelved plans to move into retail banking. If approved, Wal-Mart's ILC would allow the company to request a business plan change through the FDIC without necessarily going through this process again.

Wal-Mart weighs in

In a prepared statement to the FDIC, Jane Thompson, President of Wal-Mart Financial Services said, "The purpose of the proposed bank would be to sponsor credit card, debit card and electronic check trans-actions - nothing more.

"We have absolutely no plans to open bank branches. Our commitment not to branch and our independent in-store branch strategy is not simply a promise; it is a very visible and rapidly growing reality, locked in by hundreds of long-term contracts."

Lawrence J. White, a professor of economics at the Stern School of Business at New York University, spoke in favor of Wal-Mart at the hearings.

"Bank regulators ought to care about the ability to monitor the financial transaction of the banks," he said. "As long as the parent company is at arms length from the bank itself, it shouldn't matter what the parent company does."

Opponents rally

White said that those speaking at the hearings were weighted heavily against Wal-Mart. "I think it was about 90% hostile towards Wal-Mart, and that may be an understatement," he said.

"The FDIC has never experienced such an influx of comments on a bank application before. It is clearly a major political issue as well as a regulatory one."

Representatives from a number of trade organizations spoke at the hearings in opposition to Wal-Mart's application. Among them were America's Community Bankers, the American Bankers Association, the American Financial Services Association, the Independent Community Bankers of America, the National Grocers Association, the National Association of Convenience Stores and more.

Congresswoman Stephanie Tubbs Jones (D-Ohio ) said, "Granting an application by Wal-Mart, the world's largest commercial company, for an FDIC-insured industrial bank, would blow a hole in the wall separating banking and commerce and move us inexorably towards a parallel banking system with different rules, regulations and characteristics than the banking system established by Congress."

It's up to the FDIC

According to Barr, those who spoke at the hearing had until May 5, 2006, to turn in documents supporting their positions. The FDIC staff will analyze those materials, Wal-Mart's application and supporting documentation, and the letters received.

Then it will make a recommendation. "The recommendation will probably go to the FDIC board of directors, and they'll make the decision," Barr said. "But it doesn't have to. The board could ask the staff to make the final decision."

There's no telling when a decision will be reached. The material to weigh is voluminous, and the FDIC staff has no statutory time frame dictating when it must resolve the case.